Monday, March 30, 2009

What sells? That is the bottom line in retail, but it’s also a huge question in turbulent times. While President Obama’s economic advisors work hard to convince the public, investors, and the world that we will return to productivity and consumption, even they can’t completely answer the question of what products, services, or goods will be the key items in the new, post-fiscal-traumatic-stress market. But here’s a pretty interesting answer:Candy.

Well, yeah, probably not the first item that came to mind (imagine the headlines: “Hersheys Saves American Economy”).

But despite the hype about drastic and dramatic change, some aspects of recovery are necessarily conservative. And what’s more conservative than comfort foods? The recent surge in candy sales (The Times reports an 80% increase since last year in one major Chicago candy store) can be seen as a sign that folks are anxious, eating what makes them feel better in anxious times. Candy is always a good bet -- especially on what seems like a bad day that keeps repeating -- notwithstanding the things I'm sure my nutrition-savvy friends will say about sugary sweets adding to hyperactivity rather than calmness, but hey, that’s background noise.

The cultural history of sugar is as both luxury and necessity. The great anthropologist and author of Sweetness and Power, Sidney Mintz, points out that by the 1500s, sugar production was already pre-industrial in the New World, which generated a whole host of other industries, including the tools and gears, molds, and iron casts used to refine the substance and food production (think: canning). Within the next 200 years, Europeans colonized the Caribbean, imported slave labor from Africa (after wiping out much of the indigenous population), and produced sugar in large quantities that could be shipped back to be consumed by the working populations who were fueling the industrial revolution on that side of the Atlantic. As Mintz points out, what was once a luxury item soon became a necessity for survival (most workers subsisting on sweetened hot tea or jam and bread, foods that provided energy for long days of factory labor). But sugar retains its connection to luxury, with its use in desserts and confections. Nobility were no longer the only ones to have their cake and eat it too.

In terms of today’s sweet tooth, candy may be a quick pick-me-up for difficult times, an indulgence and a necessity that most people feel they can still afford.

And finally, there’s that whole pantheon of choices. American consumers have been deeply indoctrinated in the value of choice. When asked what makes someone or some thing American, my students almost invariably answer, “we can choose what we want to do, how we live, and what we eat.” Food marketers in particular have had to hone the message of variety – a type of Oreo cookie for every mood, every personality, and every season – in order to keep selling when it’s possible to have fed the world three times over with the excesses that generally flood our marketplace. Having wholeheartedly taken that message in, the shift in attitude can be a little rough for some consumers: yes, people are suddenly saving more, making frugality sexy, and adapting to the green “less is more” mantra. But does it mean they have to give up variety everywhere? The endless pleasures of a fertile marketplace? An inexpensive and satisfying treat? Not in the candy aisle! The last ten years have seen an explosion of types of new candy and re-introductions of old favorites. The candy section in many supermarkets is the last refuge of those 70s co-op bulk bins, no longer filled with dry lentils and granola, but colorfully bursting to the brim with Smarties, Mary Janes, Starbursts, and Jelly Beans.

But as for Hershey’s saving the economy, don’t bet the last of your nest egg just yet. Questions about its stock value, mergers, and steady sales after the last of the big candy holidays (Easter) suggest that you might be better off buying a few bars to sooth the soul and waiting to see if demand is more than just a recessionary sweet tooth.

Thursday, March 12, 2009

By now, almost everyone is feeling the reverberations of the economic crisis, whether immediately in their wallets or less directly through stress – and smart marketers have been attending to these shifts, designing campaigns that demonstrate what a good value one can get by shopping at WalMart or eating at McDonald’s. Most of these campaigns are spun in a positive fashion rather than blaring red sale signs (except of course, Circuit City, where it is already too late to resuscitate).

But not everyone is worried about the economic crisis in the same way nor shops in the same way. Even before there was an official crisis, we suggested that retail markets were not attending to the differences between consumer segments. As the low income category grows in all directions, IRI (which has been exploring this demographic group since 2007) helps track, categorize, and explain segments. While their catchy names for population segments seem a bit arbitrary to my skeptical eyes, the study does show some general trends and highlights the need to see differences even when they resist categorization. For example, many of the people they surveyed are more interested in good values than in sale items. However, price is only one factor in how they choose stores. Issues like health and well being, family and media use vary across the age cohorts, regional pockets, and cultural differences based on race or ethnicity.

Although we can critique the idea that baby boomers (a group that spans a huge age range) have anything consistent in common, we do know that those who are closer to retirement age are obviously more concerned with investment, savings, and health. Other huge aggregate segments like Latinos and African Americans seem consistently worried about managing and keeping full time work. For most of these groups, family is extremely important, but younger low income shoppers worry about more debt than savings and are more focused on friends.

In marketing to these groups, IRI suggests that less is more – less variety and category assortments, but also having stores that are open more hours to accommodate different work schedules, accept many forms of payment, and offer guarantees for store brand products (the last one comes up frequently in qualitative interviews: people buy brands only if they trust them. Being on a budget means that any risk with a new brand is a huge budgetary consideration. Guarantees take out some of that risk.). There is a strong interest in healthy foods and dollar store bargains all in the same mix. Today almost anyone can fall into the lower income shopper category (hence its lack of usefulness as a broad rubric), but it’s clear that there’s room for thoughtful promotions, product innovation, and strategic marketing within that framework.

Take this example from the food industry: according to Natural Specialty Foods Memo, Dean foods, the largest dairy food processor in the US, is predicting sales growth despite the economy because milk prices are down (good for them, not good for the dairy farmers, not good for everyone in the long run). Its line of organic products – including organic milk and soy milk – has successfully expanded into non-traditional venues like convenience stores and pharmacies. As NSFM points out, people have a strong brand association with Dean products like Silk and Horizon, so sales remain steady. However, even as the price of milk drops, the cost to consumers of organic milk will not be dropping at the same rate. At the same time, the research shows that middle to lower income consumers are equally interested in organic and natural foods, even as they are forced to cut back on some organic consumption. Fresh products rank consistently high even as consumers cut back in other areas, such as packaged organics.

So, the challenge would be to generate and market a line of lower cost organic milk. Right now, a gallon of organic milk is still 50% higher than its regular counterpart. According to NSFM,

“That's a stiff premium, which is why many consumers just can't afford to buy organic fluid milk in this economy (and often in a good economy) even though they want to. The core organic milk consumer still seems to be sticking …but there is significant overall sales erosion in the category as evidenced by recent data. A slightly lower organic milk retail price is a good goal."

Keeping the price in line and selling in venues that are accessible to everyone is one way that companies can corral that elusive but necessary low income dollar, segments or not.

Tuesday, March 03, 2009

Previously in this blog, I’ve talked about the continued importance of corporate social responsibility even in the midst of retail downturns. Indeed, a fair amount of research has shown that consumers like companies that combine charitable donations with purchases; green practices that demonstrate conservation and renewable resource use; and product development that highlights an awareness of the community of users.

In some respects, it doesn’t matter if CSR is done out of selfishness (brand image) or altruism (a clear guiding philosophy embodied in corporate practices), but in other ways companies that appear to engage in corporate social responsibility for purely selfish gain are less enticing. Still, as companies like Proctor and Gamble have shown, it should definitely be highlighted so that consumers know what they’re getting.

A recent study reported in the Washington Post goes one step further and examines whether CSR helps or hurts companies. The Post reports on a study from July 2007, by Goldman Sachs which found that sustainable companies outperformed the market, often by significant margins. The WP tested that argument by creating a ranked list of 498 companies that represented -- according to IW Financial -- a broad view of socially responsible behavior… What they found: “In the worst economic turmoil in decades, when investors had every reason to shed pretensions of political correctness, companies that put time and energy into behaving responsibly seem, thus far anyway, to have performed no worse than those that didn't.”

One interesting point that the Washington Post research reveals is that companies that appear at the bottom of the SR list were companies that are a bit more insulated from consumer demand – and yet they were also trying to engage in CSR, whether as part of their core business model or as a way of maintaining profitability (i.e. energy conservation) during tough times. The ambiguity of what “counts” as CSR makes it a bit hard to put an enormous amount of generalizability on any list, but the point is that more companies are engaged in CSR than not. As the Washington Post puts it,

“Since their products are in demand whatever the state of the economy, these companies are largely shielded from the vicissitudes of consumer taste; whatever these companies actually think about the norms entailed in CSR, they've decided they have no choice but to play along, recession or no recession.”

As Intel chairman Craig Barrett told Fortune. "We look at our CSR activities in pretty much the same way: you can't just do them in good times and then just forget about them in bad times and hope to get any results."

As one analyst put it, "leadership on corporate responsibility is not like a spigot that can be turned on when things are going well." CSR for long range planning is key.

CSR, whether or not it’s highly visible to the consumer up front, will be increasingly important as the less-savory business practices of the financial industry come to light and as companies are forced to make decisions about how to survive the recession.